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Sunday, March 21, 2010

Interstate Protectionism

Austrian Economist Russell Roberts was gracious enough to visit my blog and leave a comment. Though our disagreement is fundamental - really, we seem to live in different worlds - I appreciate the participation.

Adam Ozimek of MODELED BEHAVIOR, on the other hand, has not seen fit to acknowledge my comment on his blog. It's been over a week now, so it doesn't like like he's going to. I haven't read Ozimek extensively, but it appears his world is closer to Roberts's than to mine. In fact, I found CAFE HAYEK by following his link.

One way criticize someone’s reasoning is by showing that if followed through it leads you to absurd conclusions. The occasional radical will simply bite the bullet and accept the absurd, often ridiculous, conclusion, but by and large people will change their reasoning, or just refuse to accept logic. Protectionists in the State of New Jersey have decided to eagerly bite the bullet.

A popular argument against protectionism is that if you follow the logic through, it implies you should have protectionism between states. Here is Russ Robertslaying it out:

If it’s true that theory and evidence in favor of protectionism are sufficiently strong to warrant economists abandoning their conclusion that free-trade policy is generally sound, then why shouldn’t economists… also start exploring the potential benefits of intra-national protectionism? Surely a scholar not benighted with the free-trade “faith” ought to take seriously the possibility that, say, Tennesseeans could be made wealthier if their government in Nashville restricts their ability to trade with people in Kentucky, Texas, Rhode Island, and other states?

The usual protectionist defense rejects this absurd conclusion via some argument about differences in laws and institutions… or something like that. New Jersey’s protectionists, on the other hand, have decided to bite the bullet and are actually embracing the idea that interstate protectionism can make them better off. State legislators are trying to pass a law that mandates that all public servants must be New Jersey residents. The impacts would be far reaching:

The bill would affect teachers, firefighters, police officers, and all other employees of state, county, and local governments, as well as public authorities, boards, agencies, commissions, and state colleges and universities. Both full-time and part-time employees would be affected.

What’s great about this is that it really illustrates the flaws of protectionism that are often unintuitive when it occurs between nations. The tradeoffs you face are much clearer when the town you live in can’t hire the most qualified firefighters and teachers, and instead you’re left less qualified individuals who wouldn’t have gotten hired if they didn’t happen to live on the right side of the state line. If you want protectionism in your schools and public services, you’re going get lower quality schools and public services.

My Comment:

Unfortunately, if your logic isn’t perfect, you end up with straw men.

What you’re presenting is wrong on many levels.

While a population of limited size and resources might not have the critical mass to contain highly-qualified teachers and firefighters, it’s silly to suggest that of NJ.

A Residency requirement is a very specific and limited example of protectionism – if it even qualifies at all, which I am not ready to concede. Protectionism is used to stabilize economic entities that might not survive broad competition. Residency requirements are usually promoted for a different rationale. This looks a whole lot like Ray Bolger to me.

The States are — you know — UNITED. For one thing, they can’t manipulate their currencies relative to one another, like China does. For another, States have common goals in a way that any grouping of countries – even the E.U – does not.

Besides, Roberts makes no attempt to drive a proposition to it’s logical conclusion. He merely asks a question.

What a disappointing presentation this post is.

Wie Schade,

JzB

I'll add that many big cities, including New Jersey's near neighbors New York and Philadelphia, have residency requirements for their public servants. The economics of residency are pretty trivial. The rationale is primarily based on being a part of the community you serve.

So, whose world do YOU live in?

Update, 3/22:

I comments, below, I point out that protectionism is a zero-sum game. Here is Keynes on that topic, in 1932. (Emphasis added.) H/T to Delong.

The competitive struggle for liquidity has now extended beyond individuals and institutions to nations and to governments, each of which endeavors to make its internal balance sheet more liquid by restricting imports and stimulating exports by every possible means, the success of each one in this direction meaning the defeat of someone else. Moreover, each country discourages capital development within its own borders for fear of the effect on its international balance. Yet it will only be successful in its object in so far as its progress toward negation is greater than that of its neighbors.

4 comments:

Your argument doesn't exist in his universe, Jazz. .Actually, from experience I can tell you that what probably happened is he read your post, realized, "Yes, I'm a schmuck and this is a stupid post", and was too embarrassed to comment further on it. So it goes.

You're a brave man hanging around places with names like Cafe Hayek. The magic sparkle pony dust that the Free Market Fairy is tossing all around up there could get into your nostrils and make you sneeze or even make you all emo like those sparkle vampires from Twilight (WTF? Vampires are NOT supposed to sparkle!). But you're retired and I guess playing games of "poke the moron" is more fun than sitting in a rocking chair watching re-runs of "Hee-Haw" ;).

"Protectionism is used to stabilize economic entities that might not survive broad competition."

And this protectionism is used to help residents who couldn't survive broad competition with "foreigners" from other states. I'm not sure why the distinction of entities versus people matters?

"While a population of limited size and resources might not have the critical mass to contain highly-qualified teachers and firefighters, it’s silly to suggest that of NJ."

My complaint is obviously not that they would be unable to fill positions with people who are qualified, it's that they would be unable to fill the positions with the most qualified people.

"The States are — you know — UNITED. For one thing, they can’t manipulate their currencies relative to one another, like China does. For another, States have common goals in a way that any grouping of countries – even the E.U – does not.".... and what relevance does this have?

"Besides, Roberts makes no attempt to drive a proposition to it’s logical conclusion. He merely asks a question." Robert's statement is obviously a rhetorical question, he is clearly making the point that those who accept the proposition should take it to it's logical conclusion.

And this protectionism is used to help residents who couldn't survive broad competition with "foreigners" from other states. I'm not sure why the distinction of entities versus people matters?

I'm not saying that this distinction matters with regard to competition. I'm saying the concept of protectionism is pretty close to irrelevant in this context, because that is not why residency requirements are in place.

My complaint is obviously not that they would be unable to fill positions with people who are qualified, it's that they would be unable to fill the positions with the most qualified people.

First off, you're making a naked assertion. Second, you're splitting hairs. Third, that is not at all obvious. In your post you said, "If you want protectionism in your schools and public services, you’re going get lower quality schools and public services."

So unless you're prepared to define meaningful, demonstratable differences between various levels along some spectrum of merely qualified to most qualified; plus assume that NY and PENN have more qualified people who would be willing to commute but NOT relocate, you are, at best, serving up some rather thin gruel.

"The States are — you know — UNITED. For one thing, they can’t manipulate their currencies relative to one another, like China does. For another, States have common goals in a way that any grouping of countries – even the E.U – does not.".... and what relevance does this have?

When you have common goals, the idea is win-win. OTOH, competition is clearly zero sum. More fundamentally, the whole question of protectionism between or among the states is a contrivance, since it is explicitly prohibited by the Constitution. Cf. Article 1, Section 9.5 "No Tax or Duty shall be laid in Articles exported from any state."

So the relevance is that is brings a contrived hypothetical back into the context of reality.

Robert's statement is obviously a rhetorical question, he is clearly making the point that those who accept the proposition should take it to it's logical conclusion.

First off, in the real world, inter-national and intra-national trade are an apple and a kumquat. And my initial point still holds. Unless your logic is impeccable, your conclusion will be invalid.

What Roberts presents in a leading question, with no apparent foundation in reality.

Change in Plans No. 2. Stock Market Musings are now located at Amateur Elliott

WELCOME READERS

Disclaimer

Do I need to point out that I am not a financial adviser, registered stock analyst, or anything other than a guy playing with ideas for his own amusement?

Get your own data, do your own thinking, make your own decisions. I am not telling anybody to do anything with even a single penny of their assets. Happy Speculating!

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Change in Plans

Starting Sunday, Feb. 6, 2010, light-hearted stuff has been moved to a new blog. If you are meant to find it, you probably will. If you need directions, write me.

Meanwhile the heavy-hearted - and heavy-handed stuff stays here.

Cheers!JzB

Rules of Engagement

Over at Angry Bear, Mike Kimel has posted a list of things to think about, if you want to be taken seriously. It might be worth your time to check it out. A few are specific to his situation, most are not.

Examples:#1 Don't cite authority as proof.#2 Get your data from a reputable source.#7 Do not argue by assertion.#15 Time moves in a single direction.